Trading Key Zones Eliminates The Emotion
In Monday’s commentary, a bounce was expected this week from the 3 month
extended Standard Deviation levels, and obviously extreme oversold condition for
the period. The daytrader’s focus, in addition to the major indexes, were
energy, brokers and gold, all of which were the leaders in yesterday’s bounce.
The $HUI was +4.3%, $XBD +2.6%, OIH +2.0% and XLE +2.0%. The SPX bounced off
the Monday 1374 low to close at 1395.96 +1.5%, $INDU +1.3% to 12207, and QQQQ
+1.7% to 42.85. NYSE volume was 1.83 billion shares, with the volume ratio
(advancing volume/ advancing volume + declining volume) 94 and breadth +2220.
This was a reversal from Monday when volume was 2.0 billion shares with a volume
ratio of just 9 and breadth -2181. There was also some time symmetry for
the reversal, as the Monday 1374 low was 180 trading days from the 6/14/06
1219.20 SPX low. Also, the decline from 1461.57 to 1374 was 88 points
(rounded off), and this was additional symmetry as 89 is the Fib number and 90 is
the Gann number.
Unsustained angles of advances or declines usually have sharp reversals, and
more so in the case of a mini-meltdown like we have now. The 1987 parallel
continues, as the SPX was -6.0% in 9 days from the high close, and the $INDU -6.0%
in 9 days from the actual high. The 1987 SPX top of 337.88 had an initial
decline of -8.6% in 9 days, then bounced 6.6% in 18 days to a 1-2-3 lower top,
and then 12 days later it was -33.4% to 224.87. The 1987 decline was where
the PPT got its experience in intervening in the equity markets, and they are
most likely at work right now to avoid another 1987. In the Monday
commentary, I also said there would be lots of "everything is good" jawboning
this week to calm and reverse the market. Well, Greenspan backed off his
original recession comment yesterday, and said that there was now only a 1/3
chance of recession, while Treasury Secretary Paulson said that any bad debts
from housing will be very limited. This sent the foreign markets up, and
the S&P futures were +14 pre-9:30 AM New York opening, and the reversal was in
full motion. On Monday, Paulson also said that the economy was good, and
inflation tame. I guess he missed the report yesterday that productivity
growth had slowed again, and labor costs increased more than expected. So
if the usually-bogus government are realistic, it supports the case why 67.0% of
corporations lowered earnings guidance for 2007. Of course you don’t get
that slant from CNBC, which is the New York Times of financial reporting.
The meltdown got rid of some complacency, and sellers will lighten up on any
significant retracement. The trading will remain erratic, with sharp
short-covering, discount buying by portfolio managers, in addition to many
"players" selling both long and short into the advance. In the trading
service, it really doesn’t matter what the market does right here, because we
are trading the key price zones and levels by taking advantage of extended
volatility in both directions. We use many different primary tools to identify
these key price and time zones, all of which has kept us in sync with the
market.
Have a good trading
day,
Kevin Haggerty
Check out Kevin’s
strategies and more in the
1st Hour Reversals Module,
Sequence Trading Module,
Trading With The Generals 2004 and the
1-2-3 Trading Module.
